Futures contract

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In financean equity derivative is a class of derivatives whose value is at least partly derived from one or more underlying equity securities. Options and futures are by far the most common equity derivatives, however there are many other types of equity derivatives that are actively traded.

Equity options are the most common type of equity derivative. In financea warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is much lower than the stock price at time of issue.

Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond, and make them more attractive to potential buyers. Convertible bonds are bonds that can be converted into shares of stock in the issuing companyusually at some pre-announced ratio.

It is a hybrid security with debt- and equity-like features. It can be used by investors to obtain the upside of equity-like returns while protecting the downside futures and options basics wikipedia regular bond-like coupons. Investors futures and options basics wikipedia gain exposure to the equity markets using futures, options and swaps. These can be done on single stocks, a customized basket of stocks or on an index of stocks. These equity derivatives derive their value from the price of the underlying stock or stocks.

Stock markets index futures are futures contracts used to replicate the performance of an underlying stock market index. They can be futures and options basics wikipedia for hedging against an existing equity position, or speculating on future movements of the index.

Indices for OTC products are broadly similar, but offer more flexibility. Equity basket derivatives are futures, options or swaps where the underlying is a non-index basket of shares.

They have similar characteristics to equity index derivatives, but are always traded OTC over the counter, i. Single-stock futures are exchange-traded futures contracts based on an individual underlying security rather bet365 binare optionen a stock index. Their performance is similar to that of the underlying equity itself, although as futures contracts they are usually traded with greater leverage.

Another difference is that holders of long positions in single stock futures typically do not receive dividends and holders of short positions do not pay dividends. Single-stock futures may be cash-settled or physically settled by the transfer of the underlying stocks at expiration, although in the United States only physical settlement is used to avoid speculation in the market.

An equity index swap is an agreement between two parties to swap two sets of cash flows on predetermined dates for an agreed futures and options basics wikipedia of years. Swaps can be considered a relatively straightforward way of gaining exposure to a required asset class.

They can also be relatively cost efficient. An equity swap, like an equity index swap, is an agreement between two parties to swap two sets of cash flows. In this case the cash flows will be the price of an underlying stock value swapped, for instance, with LIBOR. A typical example of this type of derivative is the Contract for difference CFD where one party gains exposure to a share price without buying or selling the underlying share making it relatively cost futures and options basics wikipedia as well as making it relatively easy to transact.

Other examples of equity derivative securities include exchange-traded funds and Intellidexes. From Wikipedia, the free encyclopedia.

Stock market index future. Energy derivative Freight futures and options basics wikipedia Inflation derivative Property derivative Weather derivative. Retrieved from " https: Derivatives finance Options finance. All Wikipedia articles needing clarification Wikipedia articles needing clarification from March All accuracy disputes Articles with disputed statements from November Views Read Edit View history.

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In finance , a price premium is paid or received for purchasing or selling options. This price can be split into two components. The intrinsic value is the difference between the underlying spot price and the strike price, to the extent that this is in favor of the option holder.

For a call option , the option is in-the-money if the underlying spot price is higher than the strike price; then the intrinsic value is the underlying price minus the strike price. For a put option , the option is in-the-money if the strike price is higher than the underlying spot price; then the intrinsic value is the strike price minus the underlying spot price. Otherwise the intrinsic value is zero. The option premium is always greater than the intrinsic value. This is called the Time value.

Time value is the amount the option trader is paying for a contract above its intrinsic value, with the belief that prior to expiration the contract value will increase because of a favourable change in the price of the underlying asset.

The longer the length of time until the expiry of the contract, the greater the time value. There are many factors which affect option premium. These factors affect the premium of the option with varying intensity. Some of these factors are listed here:. Apart from above, other factors like bond yield or interest rate also affect the premium. This is because the money invested by the seller can earn this risk free income in any case and hence while selling option; he has to earn more than this because of higher risk he is taking.

Because the values of option contracts depend on a number of different variables in addition to the value of the underlying asset, they are complex to value.

There are many pricing models in use, although all essentially incorporate the concepts of rational pricing , moneyness , option time value and put-call parity.

Post the financial crisis of , the "fair-value" is computed as before, but using the Overnight Index Swap OIS curve for discounting. The OIS is chosen here as it reflects the rate for overnight unsecured lending between banks, and is thus considered a good indicator of the interbank credit markets.

Relatedly, this risk neutral value is then adjusted for the impact of counterparty credit risk via a credit valuation adjustment , or CVA, as well as various other X-Value Adjustments which may also be appended. From Wikipedia, the free encyclopedia. This article does not cite any sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. September Learn how and when to remove this template message.

Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Retrieved from " https: Options finance Mathematical finance. Articles lacking sources from September All articles lacking sources. Views Read Edit View history. This page was last edited on 25 March , at By using this site, you agree to the Terms of Use and Privacy Policy.